Perinatal lung maturation allows transition to independent extrauterine life and requires concerted expansion of the epithelial gas exchange surface and the juxtaposed capillaries. Interruption of this process by premature birth is a major risk factor for serious lung diseases, such as bronchopulmonary dysplasia (BPD) that frequently manifests as alveolar simplification and dysmorphic capillaries. Although covering >95% of the alveolar surface and overlaying most of the alveolar vasculature, alveolar type 1 (AT1) cells are traditionally considered a passive structural component and attention has been focused on alveolar type 2 (AT2) cells because of their stem cell potential and role in surfactant production. This, combined with technical challenges in studying the ultra-thin (<0.1 um) AT1 cell extensions, results in our limited knowledge of the role of AT1 cells in normal and pathological alveologenesis. An in-depth understanding of AT1 cells during development is necessary to catch up with recent progress in studying AT2 cells and fibroblasts to obtain a complete picture of perinatal lung maturation. Our preliminary data support a novel hypothesis that AT1 cells have a signaling role in coordinating alveolar morphogenesis and angiogenesis during perinatal lung maturation. This proposal has the following three specific aims. (1) To determine whether AT1 cell development promotes alveolar angiogenesis. (2) To determine whether AT1 cell derived angiogenic factors promote alveolar angiogenesis. (3) To determine whether AT1 cell dysfunction contributes to hyperoxia-induced alveolar simplification. In summary, this proposal employs novel quantitative imaging and genetic tools to study the poorly understood and unexpected role of AT1 cells in perinatal lung maturation, and represents a step toward our long term goal of elucidating mechanisms and therapies of lung immaturity.